How to Get Away with Spying for the Enemy

Sarah Laskow | Topic | July 2017 | 14 minutes (3,700 words)

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Ronald Rewald and Richard Craig Smith did not appear to have much in common. The founder of an investment firm in Hawai’i, Rewald lived like a Master of the Universe, traveling the world in expensive cars, staying in expensive hotels and throwing expensive parties. Smith, by contrast, lived in Utah, with a wife and four children. A former case officer in intelligence with the United States Army, he had resigned from his job at the start of the 1980s to spend more time with his family. He sought to make a new life for himself as an entrepreneur;  when VHS tapes were still cutting-edge, he began a service to make video diaries and testimonials for families to pass down from one generation to the next.

What brought Rewald and Smith together was espionage. In the early 1980s, legal troubles tangled the two men in a similar narrative of spying and betrayal. First charged in August 1983 in state court with two counts of theft, Rewald was eventually indicted, a year later, on 100 counts of fraud, tax evasion, perjury and other federal crimes. In April 1984, Smith was accused of much more serious offenses—conspiracy, espionage, and transmission of secret material, charges that, were he convicted, could lead to a death sentence. The two men were represented the same lawyer, the bombastic Brent Carruth, and they had the same defense for their alleged crimes: The CIA made me them do it.

Rewald and Smith’s assertions sometimes seemed preposterous, as if lifted from a convoluted spy novel. The cartoonish stories they told involved fake names, fear of assassination, and envelopes full of cash. (They certainly seemed fictional to government prosecutors, who dismissed the tales as fabrications.) But in the Reagan era, as now, the news was full of undisclosed meetings and clandestine plots to swing elections. Americans were being inundated with reports about the secrets of the intelligence community: the Watergate revelations about the CIA’s domestic surveillance, the assassination attempts on foreign leaders, and the Iran-Contra scandal, for starters.

Suddenly, anything seemed possible.

On paper, the government’s success in Smith’s case was all but assured. Americans have little tolerance for disloyalty. There have been more than 110 Americans arrested on espionage charges since the 1950s and those who didn’t defect before they were sentenced to years, sometimes decades, in prison.

But though Rewald and Smith’s stories sounded wild, their juries weren’t entirely willing to trust the veracity of the government’s narrative, either. In the end, one of the two men would be sent to jail, the other set free.

* * *

In 1978, Ronald Rewald was a new arrival in Hawai’i, where he had opened up an investment firm named Bishop Baldwin Rewald Dillingham and Wong (BBRDW). Rewald had come from Wisconsin, where, he said, he’d played briefly on a professional football team and, less briefly, worked in the sporting goods business as a salesperson and company manager. As the head of BBRDW, Rewald enjoyed substantial financial success: He moved to a house worth close to a million dollars in a fancy neighborhood, and began traveling all over the world, from Taipei to London to Paris. He became wealthy enough that he was able to buy a polo club.

In 1983, five years after his arrival, Rewald’s high-flying life began collapsing. His firm had taken millions of dollars from investors with the astounding promise of 20 percent returns, but the returns were non-existent. Rewald operated a Ponzi scheme, using new investors’ money to pay older investors. The IRS opened an investigation, and Rewald was soon indicted for fraud.

From there, a fountain of lies gushed forth. It turned out that he hadn’t graduated from Marquette University, as he claimed. He had told investors, falsely, that the firm had been around since the 1910s. (Elvis Presley had been a client, he said.) Even the name of his firm was fake: no one named Bishop, Baldwin, or Dillingham, three of Hawai’i most well-known families, had anything to do with the business. (Sunlin Wong is a real person, and he was also prosecuted for fraud.)

Rewald, however, had an excuse for everything. After his arrest, he claimed that during his international travels he’d been collecting information for the CIA. And his ties to the agency went even further than that, he said. He’d also been working on clandestine arms deals. In fact, the whole firm, he explained, was a front for CIA operatives… and the only way for him to repay his investors was to gain access to a secret bank account in—where else—the Cayman Islands.

Rewald’s legal defense got off to a slow start. Even after he had been indicted in federal court, Rewald didn’t have a lawyer to argue his case. He didn’t have much money and, he told the court, after talking to dozens of lawyers, he hadn’t found one he could now afford. At first, a federal judge wouldn’t appoint one for him: Rewald needed to scale down his lifestyle—he was still living in a mansion and leasing an expensive car—before the public would pay for his lawyer.

So he must have been relieved when, in the fall of 1984, Brent Carruth, a California lawyer, offered to represent him. There was a catch, though. Carruth was already representing another man with an interest in Bishop Baldwin’s supposed CIA connection: Richard Craig Smith.

* * *

He went by Craig, and he was nice enough guy, according to one of the FBI agents who helped collect evidence against him. He wore an early-80s mustache—thick but trim, like Tom Selleck’s—and parted his dark straight hair far to one side. Born in Logan, Utah in 1943, Smith had enlisted in the Army in 1967, during the Vietnam War, after spending two years on a Mormon mission in Paris. For 13 years, he had served in the military as an intelligence officer, earning a top-secret security clearance and overseeing double agent operations targeting Soviet intelligence, before resigning in 1980.

In 1981, the year after he resigned, Smith was on a business trip for corporate clients of his video business when two men showed up at his Tokyo hotel. They identified themselves as Ken White and Danny Ishida and claimed they worked for U.S. intelligence, providing details about Smith’s former Army double-agent operations as proof. White had a request for Smith: Start performing small courier tasks, such as carrying sealed letters to an address in San Francisco. (Businessmen, according to Smith’s own account, are used for such tasks because they’re harder to track than CIA agents posing as diplomats.) Smith agreed. “I could pull it off, and I should pull it off,” he explained in Accused, his 1987 as-told-to-memoir, published by Utah-based Horizon Publishers & Distributors. “There was a need. There was an opportunity. I felt it was my patriotic duty to serve when called.”

In the summer of 1982, after Smith had proved himself to be a reliable (and paid) courier, White asked him to become a double agent—to approach the Soviet government and start pretending to work with the KGB. Smith would sell Soviet intelligence the details of the American double agent operations he had worked on, and let them think they had bought him off. Secretly, though, he would be working for the CIA, trying to gather information on the inner workings of the Soviet spy system.

This, at least, is what Smith told the jury who listened to his story in April, following his arrest for espionage two years earlier in April 1984. It was also, more or less, the story later published in Accused. The main difference between Smith’s version of events and the government’s was his assertion that he worked for the CIA. The FBI and Department of Justice prosecutors were confident that Smith was not a CIA agent and that, when he sold information to Soviet officials, it was for his own personal gain.

What everyone agreed on was this: On November 5th, 1982, while visiting Tokyo, Smith called the Soviet embassy from a payphone to hint that he had classified information about the U.S. to sell.

That call set off a pas de deux of spy work. Soviet intelligence wouldn’t just invite Smith over to the embassy; each side had to have a couple of chances to back out of the meeting, in order to underscore their commitment to the illegal exchange. First, Smith waited for officials at the embassy to consider his offer. He’d know that they were game when, at Tokyo’s iconic La Scala coffee shop, someone would page a “Mr. David”. When the page came in, Smith called back from the coffee place. Then came another page, followed by a call, this time at the Takanawa Tobu Hotel, a streamlined building near a Soviet embassy compound. Finally, after fielding another page-and-call from his new Soviet contact, whose name Smith doesn’t yet know, Smith walked into the Russian compound, a boxy building fronted with rectangular windows and solid, white gates. He finally met his correspondent, a KGB office named Victor I. Okunev.

Smith had a plan. He knew a certain amount about America’s covert operations—information that the Soviet government would be very interested in. He was going to sell that information. Two days later, Smith and Okunev met again at the compound.  In that meeting and another the following February, Smith disclosed the details of six American intelligence operations, including the identity of a double agent known as “Royal Miter.” In exchange for these secrets, Okunev gave Smith $11,000—fifty $100 bills at the first meeting, another $6,000 at the second.

In his account, Smith claimed the CIA had approved the release of these details—that giving them to the Soviets didn’t harm anyone. The government, however, said that, far from being approved, the sale of such details put U.S. double agent operations at risk

Regardless, a few months after his third meeting with the Russians, in June of 1983, Smith called the FBI and told them what he had done.

* * *

Before the federal government arrests an alleged spy, prosecutors want to know what kind of case they have. Over and over again, FBI agents asked Smith to go over the details of what had happened in Japan. He was interviewed at least 8 times, with a polygraph. The FBI was also interested in the details of Smith’s financial situation: His video company, Timespan, had failed, and Smith had declared bankruptcy just around the time he was meeting with Okunev, giving him a motive for selling American secrets.

In all those interrogations though, Smith never once told the FBI that he was secretly working for the CIA. Almost a year after the FBI investigation started, the government put him under arrest.

Until then, Smith’s drama had been unfolding in secret, but when he was finally arrested, the press jumped on the story and followed it closely. After reading of Smith’s arrest in the papers, Carruth, a lawyer with an apple-cheeked grin and a combative, dramatic style rarely seen outside of television courts, called up Smith’s family. Carruth had met Smith while working on another case in Utah, and he wanted to offer his services as Smith’s lawyer. (His fees would be covered by money raised by the Mormon community for Smith’s defense.)

When Carruth started working on Smith’s case, his client still had not said anything, to anybody, about working with the CIA. When the agents and prosecutors who worked on the case heard Smith’s defense, that he was secretly a covert agent the whole time, they did not believe it, telling the press and the jury that he’d fabricated the story. If Smith was really working for the CIA, they suggested, they would have had some idea.

But Carruth? “Carruth believed,” the lawyer himself said, using the third person to some kind of effect. “He believed Craig Smith.” He needed evidence to back up his client’s claims, though. According to Smith, those two CIA agents he had met in Japan, White and Ishida, had given Smith a business card with a name and number listed on it. They had explained that, if someone else showed Smith the same card, it would mean he was also working for the CIA.

Interestingly, the listing on the card was that of a subsidiary company of a certain investment firm in Hawai’i— Bishop Baldwin Rewald Dillingham and Wong, the business founded by Ron Rewald. By this time, of course, the firm had already collapsed and Rewald was under arrest. But Carruth thought he might still be able to scoop up financial documents from Bishop Baldwin, now held by a court-appointed trustee, to shore up his client’s incredible story, and early in the summer of 1984, he went to Hawai’i to try to obtain copies. There, Carruth first met Rewald, who was out of prison on bond, and in Carruth’s words, “frightened and confused.” In the year since Bishop Baldwin had fallen apart in August 1983, Rewald had been telling the press and the courts that the CIA was to blame for his situation, but no one seemed to believe him. He faced the possibility of years in jail and was having trouble finding an experienced lawyer to represent him.

Though there was a potential conflict of interest with Carruth representing two men with intertwined defenses, according to Carruth, Rewald begged for him for help. “Please,” he said, at one point. “I have no one else. Please help me, I am innocent.” Carruth agreed to take on his case.

* * *

The mid-1980s were tumultuous years for spies. The CIA had been disgraced by its role in the Iran-Contra affair, and it was also proving vulnerable to leaks of classified information from inside its own community. In just 15 months, from June 1985 to October 1986, there were more than a dozen arrests of both American and Soviet spies for espionage. Between 1984 to 1986, 27 U.S. citizens were charged with sharing, intending to sell, attempting to sell, or actually selling classified information to foreign countries, including Israel, China, Ghana, and, of course, the USSR. The year 1985, which the media dubbed the “Year of the Spy,” still holds the U.S. record for the number of spy-related charges against American citizens who sold information to foreign governments.

Who were these rogues? There was Richard W. Miller, arrested for giving classified documents to his Russian lover, who turned out to be working for the KGB. There was John Walker, a Navy intelligence officer, who started selling information to the Soviets late in 1968 and compromised millions of secret documents before he was finally arrested in 1985. There was Jonathan Jay Pollard, who sold classified information to Israel, and Ronald Pelton, an officer with the National Security Agency who was paid tens of thousands of dollars by the Soviet government for hours of debriefing and consultation about U.S. intelligence operations against the U.S.S.R. Like Smith, many of the men who sold information to the Soviets had fallen into financial difficulties; at least one other, Miller, also tried to argue in his defense that he had been trying to spy on the KGB.

In a 1987 report about the spike in espionage cases, a Congressional intelligence committee called the anti-espionage work at the CIA “a litany of disaster.” This was because many of the men and women who pled guilty or were convicted of espionage charges had worked in the intelligence community in some capacity and their odd behavior, which should have been a warning sign, was “ignored or given insufficient attention by management,” the committee reported. The press, too, was less than impressed with the CIA. “Soviets Winning Spy War,” one newspaper headline announced. “They’re definitely out ahead,” one diplomat told UPI. “The West has taken a bad beating.”

It is in this environment that Craig Smith would be acquitted, the only accused Cold War spy to walk away from the charges against him.  Rewald, though, didn’t get off so easy. Though he stuck with his story that the CIA had instructed him to spend millions of investors’ dollars to live like a wealthy man, the jury didn’t believe he was acting at the behest of the agency. In November 1985, Rewald was convicted of fraud and later, sentenced to 80 years in prison, before Craig Smith even went to trial.

* * *

It would have been easy enough to assume that Rewald’s conviction would undermine the intersecting stories between himself, Craig Smith and Brent Carruth. But there was just one problem: Not everything about Rewald’s story was a fabrication.

During his trial, the government had been forced to reveal more than it had wanted to about the CIA’s relationship with the Bishop Baldwin firm. Although at first the agency had denied any connection with the company, it later allowed that its officers had used the organization as “light cover”, deploying the firm to provide telephone numbers, telex, and business cards for agents and officers so that when they posed as business people, they could have actual, verifiable resources to back up their stories. Rewald himself would sometimes report to the CIA office about his conversations with foreign businessmen, but according to a judge in the case, his own conception of his importance to spycraft far outpaced reality.

Conveniently enough for Carruth, the information revealed in Rewald’s case would help his other client, Craig Smith. Rewald became a witness in Smith’s case, testifying that the CIA had used his firm as a front for their activities. Smith himself testified that White and Ishida, the agents who had originally recruited him, had disappeared at around the same time Bishop Baldwin was collapsing, and that he had not been able to contact them again. Carruth also managed to subpoena Charles Richardson, a former CIA station officer who had been based in Hawaii. Richardson, who also went by Richard Cavanaugh, had been connected to Bishop Baldwin; the phone number listed on that Bishop Baldwin business card had been his own contact number, used as part of his CIA cover. The government argued that the link was faint, but it was also undeniable.

Smith had spent two years awaiting trial but the proceedings went shockingly quickly, with just five days between opening and closing arguments. Carruth did his best to make the trial seem like thriller; at one point, he confronted Smith with a simple question—”Mr. Smith, are you a spy?”

“I have been, yes,” he responded.

“For whom?” Carruth prompted.

“For the United States of America,” Smith said.

* * *

The press, which had been covering the case closely for two years, ate the drama up. So did the jury. After only hours of deliberation, they delivered a verdict: On one count of conspiracy, two counts of espionage, and two counts of transmitting secret material, Smith was not guilty.

Smith’s alleged crimes did not threaten national interests in, say, the same way as John Anthony Walker’s years-long betrayal, in which the former naval officer helped the Soviets decrypt over a million secret U.S. military messages. But to some FBI agents, it still rankles that Smith got off. In an interview, former agent Rick Smith, called Smith’s defense “a preposterous story.” Ron Hilly, who administered some of the polygraphs Smith took, called it “a very creative defense.” Other agents, who didn’t work on the case but have experience in counterintelligence, told Topic that Smith’s story was hard to believe.

From the FBI’s point of view, here was guy who had confessed to selling information to the Soviet government, with a compelling reason to do so—he needed money. If he had turned himself in, it was only because he’d feared the FBI had gotten a whiff of his crime and had wanted to try to minimize his punishment. (He may have hoped to actually become a double agent.)  

To people who work in counterintelligence, perhaps that biggest jump Smith and Carruth were asking the jury to make was to believe that Smith would be on trial in the first place. Department of Justice lawyers consulted with the CIA before going ahead with the prosecution. If Smith had been working for the CIA, counterintelligence experts say, there’s no way he would have been allowed to go to trial.

Why did Smith get off, then, when so many other spies were falling? In the most famous cases of the 1980s—Walker, Pollard, Pelton—the men who were caught had dug themselves so deep into selling out the U.S. that the only real question was how harshly they’d be punished. But in plenty of other cases, defendants were sent to jail for much less. Sometimes they hadn’t even gotten around to selling American secrets, only considered it. There were even other cases where disloyal Americans turned themselves in, hoping they could parlay their position into a role as a double agent.

Only Rewald and Smith claimed they had been on America’s side the whole time and had a lawyer with the bluster to try to sell that story. However flimsy that defense might have sounded to counterintelligence pros, to someone outside that world, Smith’s story might not seem entirely preposterous. The choice comes down to whose statements you trust more—people who work for the government, who make a living from keeping secrets or guy who, if he’s telling the truth, was betrayed by his own government. That betrayal seemed all too possible.

* * *

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